In fact, the traditional currency exchange market trades over 300 times the size of the cryptocurrency market. Around $5 trillion in currency is traded in every 24 hour period, while the entire cryptocurrency trades around $15 billion.
What these means in the cryptocurrency market is that you can’t trade the same amount of currency that you normally would through a forex exchange, without facing significant slippage.
Like any marketplace, cryptocurrency trading and its prices is simply based on supply and demand. There can be discrepancies though when the supply outstrips the demand or vice versa.
This especially comes into play when you want to trade large amounts of currency.
On an exchange, you’ll see a price that’s quoted that’s meant to be representative of the current price of the currency. However, what that price really shows is the last price in which the currency is bought.
If you click in further to it, you can see the orderbook and the prices being asked for certain trades. Not everyone in that order book wants to sell their bitcoin, ethereum or whatever cryptocurrency you’re trying to buy for the same price as the other guys - meaning that the face value price you see often fades after a small amount of volume.
For example, at the time of writing, there is 2BTC worth of bitcoin that people are willing to sell at the $11,024 price that BTC Markets currently quotes for bitcoin. However, if you look further down the orderbook, you’ll see the lack of volume means the price for 1BTC if you’re trying to buy 10 of them, reaches $11,193.
This is what slippage is. The gap between the cheapest or best price available and the price for the volume you actually want to buy. In this case, that slippage is 1.5%, meaning you’ll pay around $1,690 more for the exact same amount of coins. A big difference.
This increases massively, the more you want to buy. If you wanted to buy 100BTC, you would be paying $12,550 per BTC. This would be a 13.84% slippage rate, and an extra $152,600 you would be paying for the same amount of bitcoin.
And this is before the fees the exchanges put on to your transaction, which in BTC Markets case would be another 0.15% at that volume, or $1882. In total, you’ve been stung with paying almost $155,000 extra for your coins.
That’s a lot of extra money.
Sure, you could maybe get around it by doing many small transactions until you’ve reached your desired amount, but this requires both a lot of effort and luck. The price between the first trade will likely move
This is where an Over The Counter (OTC) trading desk comes in.
OTC desks are different in the sense that rather than dealing through an exchange, OTC desks find sellers or buyers who individually hold large amounts amount of currencies and pair them for the sale.
This avoids the slippage, as everything is sold at the one rate - often around the best price you can find on an exchange.
Trading through an OTC desk, such as HiveEx works like this:
The other big thing traders often forget with exchanges is the withdrawal process if you’re selling. Some exchanges can take days or even weeks to withdraw your fiat after you sold them, and account restrictions often mean you can only withdraw certain amounts at a time.
When you trade through an OTC desk, everything is done at once, and your funds are settled in most cases within 24 hours of the trade completing, often in the same day.
Most trades over cryptocurrency OTC desks are over $50,000 worth of coin. It could be wealthy individuals, hedge funds or institutions looking to offload. Bitcoin and Ethereum miners also participate in the OTC market - as it’s much easier for them to sell off their hundreds or thousands of BTC each week than to try and offload them onto an exchange.
Most individual traders move around $150-$200,000 at a time, however it’s not uncommon to see larger institutions looking to push well into the $5-10 million worth of cryptocurrency trades each day.
In saying this, while most transactions are over $100,000, you can trade on an OTC desk with as little as $20,000 at a time, which could still save you a lot of money if the liquidity is low on the exchanges at the point in time.
Crypto bull, trader, and long term fan of Dogecoin.
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